risk engineering services automotive industry trends

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Automotive Industry TrendsCasualty risk landscape

2 Swiss Re Automotive Industry Trends – Casualty risk landscape

The automotive industry is encountering extensive upheavals on multiple fronts due to fundamental disruptions in propulsion technologies and mobility concepts. Electromobility, driving automation, computerised and connected vehicles, and the sharing economy have given rise to a myriad of interconnected trends that are significantly impacting the casualty insurance risk landscape for the automotive industry.

Swiss Re Automotive Industry Trends – Casualty risk landscape 3

Automotive chip shortage Increasing digitisation in vehicles has resulted in a surge in demand for microchips in the automotive industry. Between 2012–2019, production revenues from automotive semiconductors rose by over 60% globally1. However, the industry is still a relatively small player with respect to chip consumption when compared to computing, wireless communications and consumer electronics. The computing industry, for instance, generated four times the chip revenue of the automotive sector in 20202. Additionally, the just-in-time production strategy of the automotive industry is dependent on an uninterrupted flow of goods and services. Therefore, any disturbances along the supply chain have severe consequences on output.

The onset of the Covid-19 pandemic in 2020 set in motion a chain of events that led to a lingering scarcity of chips for critical automotive components. In the initial stage of the pandemic, original equipment manufacturers (OEMs) cancelled chip orders amid plant shutdowns. This coincided with exponential growth in demand for personal electronic devices due to a surge in home-based activities, triggering a shift in production priorities for chipmakers. As a result, when automotive demand recovered, there was a significant gap in chip supply. The intensive R&D process associated with chip design as well as the time and capital needed to erect stable fabrication plants hinder the short-term ramp-up of semiconductor production. Other unforeseen events in 2021, such as the severe drought in Taiwan and the fire at a Renesas factory, further exacerbated the global chip shortage.

According to some estimates, almost 6 million vehicles have been lost from global production due to the chip shortage3, with the industry poised to lose over USD 100 billion in revenues globally in 20214. Ford, for example, have had to shut down several plants and projected the chip crunch to reduce their 2021 earnings by USD 2.5 billion5. OEMs such as General Motors and Volkswagen have also curtailed production. By contrast, some automakers have seen fewer disruptions during the crisis, indicating varying degrees of supply chain resilience within the industry. Companies that are more vertically integrated or have direct supply deals with onshore chip providers have fared better. With electronic component needs set to amplify, it is vital that OEMs and suppliers learn from the current predicament and devise concrete strategies to manage the widening chasm between chip demand and supply.

Sourcing alternative suppliers can be a viable solution for standard chips and other building-block electronic components. The proprietary architecture of microcontrollers used in electronic control units (ECUs) makes it more difficult to switch suppliers. Prior to securing a new source, a thorough assessment of supplier capability and quality is imperative. The perils of insufficient due diligence were demonstrated in 2019 when an auto supplier engaged a new capacitor provider without a thorough audit. The newly sourced capacitors were mounted on printed circuit boards (PCBs) in cooling fan motors but were defective and short-circuited, triggering a recall. Another avenue being explored to counter the chip famine is

redesigning components to utilise more accessible chips. Product liability or recall risks can increase as a result, especially if safety-relevant parts are redesigned within a short period.

Casualty relevance

What can insureds do to minimise these risks?

Devise a robust ‘make or buy’ strategy for the long term to secure chip supplies.

Secure partnerships with chipmakers and foundries that produce chip wafers. Strive for long-term guaranteed orders as opposed to short-term flexible terms of the past.

Ensure that supplier selection and integration is performed diligently.

Rethink just-in-time manufacturing for critical parts that can cause bottlenecks in the supply chain. Establish greater transparency in the chip supply chain beyond Tier 1 suppliers. Deploy state-of-the-art digital supply chain risk management tools to improve crisis preparedness.

Revisit component design to reduce the overall quantity of chips in the vehicle. Explore redesigning possibilities to replace scarce chips with more readily available ones.

Product liability 3

Recall 4

General liability 1

Directors & officers 2

Motor 2


New players disrupting the status quo The highly regulated nature of the automotive sector combined with the complexity associated with internal combustion engines and transmission mechanics meant that the industry has been long dominated by a handful of experienced and established OEMs. Moreover, vehicle manufacturing operations are highly cost-intensive, and the reputation building process is long and arduous. These factors made it difficult for new players to enter the market except for a few small-scale producers of highly customised hypercars. A similar pattern could be observed with Tier 1 companies. Many large suppliers diversified their activities to fulfil various customer needs, transforming themselves from component suppliers to complete system providers of multiple product groups.

The emergence of China as an automotive force saw numerous automakers sprout up in the country, though these have hitherto catered primarily to local demand. The arrival of Tesla, the 2015 emissions scandal and the rise of autonomous driving have been major disruptive events for the global automotive industry, leading to an unprecedented period of investor backed newcomers, both as OEMs as well as novel technology suppliers. For instance, 10 e-mobility companies alone have raised over USD 40 billion in funding, with 60% of these being formed after 2010 and none before 2003. California and China have been the main hubs of these developments. Traditional automotive suppliers also face severe competition from well-funded new entrants crossing over from other industries, particularly information technology and consumer electronics.

Although many of these nascent ventures have impressive concept vehicles and innovative prototype technologies, very few have thus far succeeded in launching viable series products. Several projects have been either delayed by multiple years or shelved completely. The pressure to adhere to ambitious timelines and deliver investment returns can result in underdeveloped quality management systems and insufficient product validation procedures.

Casualty relevance


Strike a healthy balance between marketing and product/process development budgets.

Ensure critical hires possess the right expertise and fit overall company strategy.

Ensure close partnerships with experienced counterparts to counter the lack of experience.

Implement a data-driven quality management system and a transparent risk management approach. Simplify the supply chain as far as possible till robust processes are established.

Document all communication with suppliers and/or customers regarding expectations and changes throughout the product development phase.

Implement an agile software-supported lessons learned process.

Proactively monitor and analyse field vehicle data to identify defects earlier and limit the impact. Devise a robust yet efficient recall plan with clearly defined actions and responsibilities.

Product liability 5

Recall 4

General liability 2


Motor 2


Risk sharing through collaborations In a rapidly evolving ecosystem driven by dynamic developments in electric vehicle (EV) technology, shared mobility and rising driving autonomy, automotive collaborations must adapt accordingly. In addition to cost and knowledge sharing alliances between established industry names built around common platforms and powertrains, technology partnerships with companies from outside the industry are gathering steam. Challenges in future automobiles will centre around themes such as data transfer, cybersecurity, artificial intelligence, advanced human-machine interactions, Internet of Things (IoT) solutions and advanced driver safety apparatus. These topics have not typically been the core competencies of traditional OEMs and suppliers, thereby intensifying the need for collaborations with firms specialised in these areas.

Self-driving technology has been a major driver of novel alliances within the industry. For instance, Google spinoff Waymo has partnerships with several global automotive players such as Volvo, Stellantis, Jaguar, Daimler and Magna. The NAV Alliance aiming to advance autonomous and connected vehicle technologies consists of Volkswagen, global suppliers Bosch and Continental and tech companies NVIDIA and Aquantia.

Cloud service tie-ups are another focus field and include Continental partnering up with Amazon and Ford’s collaboration with Google. As part of the partnership with Google, millions of future Ford vehicles will be powered by Android from 2023 onwards, with in-built Google apps and services. OEMs have also made a concerted effort to be part of the ride-hailing domain. Examples include Toyota’s USD 1 billion investment in Grab6 and General Motor’s USD 500 million investment in Lyft7.

Beyond software-centric collaborations, e-mobility hardware has provided a further avenue for fostering cooperative relationships. Key EV battery manufacturers such as CATL, LG Chem and Panasonic have partnerships in place with major OEMs. Both BMW and Volkswagen are collaborating with Northvolt, a battery startup established in 2016. Amazon has ordered 100,000 electric delivery vans from its partner EV startup Rivian8, with the first batch to be deployed in 2021/22. A cooperative climate encourages agile innovation, enabling companies to gain a competitive advantage and drive market developments. It also allows risk to be shared amongst multiple parties. As the last two examples show, however, partnerships are not always formed between two established operators but increasingly involve new entrants with limited automotive experience. Hence, a thorough risk management approach is necessary.

Casualty relevance


Companies must thoroughly vet potential partners to ensure strategic alignment and culture fit.

Clearly outline intellectual property ownership rights and define concrete goals of the alliance.

Ensure shorter feedback loops and software-supported collaborative efforts.

If the cooperation involves an experienced player and a newcomer, the more established party must provide guidance and structure without reducing their partner’s agility.

To attain maximum value from transformative technologies, automakers and suppliers must possess a coherent model to integrate the acquired capabilities from their partners.

Product liability 4

Recall 4

General liability 2


Motor 2


Vehicle contract manufacturing OEMs have traditionally employed contract manufacturing to absorb fluctuating production volumes for specific models and to enter new markets. In addition to providing valuable flexibility, this strategy enables automakers to avoid high import duties in specific regions and reduce logistics costs by sourcing contractors locally. Outsourcing the cost-intensive vehicle assembly process is an especially attractive option for new players in the EV sector as it allows them to focus their resources on their core competencies.

A case in point is the deal between US-based EV startup Fisker and the Taiwanese electronics giant Foxconn, best known for assembling Apple’s smartphones. The agreement will see Foxconn manufacture more than 250,000 vehicles a year for Fisker9. Similarly, South Korean auto supplier Myongshin announced a deal in 2019 with Byton – an EV startup from mainland China, to build more than 50,000 EVs a year10. Byton will also benefit from South Korea’s free trade deal with Europe and the United States through this agreement. This outsourcing formula could potentially become a blueprint for newcomers with groundbreaking advanced driver assistance systems (ADAS) or EV propulsion technologies to put their vehicles on the road rather than operating further down the value chain.

Despite its advantages, contract manufacturing does not come without challenges. One concern of this practice is the quality and reliability of the products. OEMs are much closer to the actual development of the vehicles and, therefore, understand the specifics in detail. Contract manufacturers typically produce several different products to which they have to adapt their processes. Thus, assuring OEM-level quality standards across multiple plants with a global spread is a tricky proposition. Furthermore, the contract manufacturer’s suppliers might not coincide with the OEM’s preferred selection. This would either entail integrating additional parties or necessitate that the existing suppliers adapt their capabilities to the OEM’s specifications. OEMs must clearly define the extent of responsibilities and operational roles in case of recalls in advance.

Casualty relevance


Contract manufacturers must ensure that their quality and risk management methods are robust and adaptable to different products and assembly processes.

Contract manufacturers must strive for a stable workforce without much fluctuation and ensure that robust series launch procedures in addition to an experienced launch team are in place.

Suppliers of contract manufacturers must get involved early on in discussions regarding component development and voice their opinions and concerns in a timely fashion.

Product liability 3

Recall 4

General liability 2


Motor 1

References1 Automotive Industry Hungry for Microchips, www.statista.com2 How a Chip Shortage Snarled Everything From Phones to Cars, www.bloomberg.com3 The latest numbers on the automotive microchip shortage, Automotive News Canada, www.canada.autonews.com4 Automotive Chip-Shortage Cost Estimate Surges to $110 Billion, www.bloomberg.com5 Ford redesigning parts to use more accessible chips, weighing direct deals with chip foundries, www.reuters.com6 Toyota to Invest US$1 Billion in Grab As Lead Investor for Grab’s New Round of Financing, www.grab.com7 GM Invests $500 Million in Lyft, Plans System for Self-Driving Cars, The Wall Street Journal8 Amazon orders 100,000 Rivian electric vans, will hit the road in 2021, www.cnet.com9 Fisker and Foxconn Set to Collaborate on Electric Vehicle Project, www.fiskerinc.com10 South Korea’s Myongshin to build EVs for Chinese brand at ex-GM plant, www.reuters.com


Conclusion & OutlookThe field of motorised individual mobility is undergoing dynamic disruptions and changes. Novel notions and technologies from a decade ago might become obsolete by 2030. The sector is being driven by the macro trends of alternative drive systems powering increasingly autonomous and computerised vehicles. OEMs and suppliers alike have to adapt and evolve at an unprecedented speed, which gives rise to its own set of risk assessment challenges for partner industries such as insurance.

A prime example of this is the path that autonomous driving is taking. With legislators worldwide slowly opening up to higher levels of driving automation, liability is gradually shifting from drivers to manufacturers. However, the large-scale deployment of driverless vehicles is still several years away. In the meantime, a grey zone of risk is forming with respect to mid-automation level driver assistance models. Recent incidents of misinterpretation and misuse of driver assistance features have led to severe accidents. Moreover, the risk of cyber-attacks has risen dramatically with vehicle automation.

The automotive industry is also facing challenges beyond the trends discussed in this report. The full impact of the Covid-19 pandemic is still unfolding. Lengthened idle times of metallic

raw materials during pandemic-induced shutdowns could have compromised material quality in some instances, potentially resulting in a spike in failure events of metallic components in the short term. OEMs and suppliers should review their incoming goods inspection process to account for these disturbances. Additionally, the push towards achieving a circular economy raises concerns regarding the long-term durability and integrity of recycled and remanufactured parts. It is essential that product lifecycle validation procedures accommodate these uncertainties.

The composition of the industry may well be very different in the future from today. Major players could choose to shift focus completely from hardware to software in the long term. Some might adopt the brand licensing route for commodity manufacturing as seen in the smartphone industry, while others might exit the field altogether either due to shifting product priorities or failure to adapt to the altering landscape. The variables in the automotive sector are constantly rising and necessitate vigilant monitoring from all parties involved to stay ahead of the proverbial curve.

© 2021 Swiss Re. All rights reserved.

Title: Risk Engineering ServicesAutomotive Industry Trends – Casualty risk landscape

Authors:Ankur Batra, Risk EngineerRoland Friedli, Senior Risk Engineer

Graphic design and production: Swiss Re Corporate Real Estate & Services/Media Services, Zurich

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© 2021 Swiss Re. All rights reserved. corporatesolutions.swissre.com

For more information please contact our Corporate Solutions Casualty Risk Engineering team:

Ankur Batra (EMEA) [email protected] Telephone: +49 89 384 41041

Christian Schauer (EMEA) [email protected] Telephone: +49 89 384 41685

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risk engineering services automotive industry trends

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